Fashion brands worldwide are facing a significant challenge with billions of dollars’ worth of unsold inventory, as reported by The Guardian. The issue is particularly prevalent in developed markets like the U.K. and the U.S., where brands are hesitant to resell excess stock to avoid market cannibalization. On the other hand, emerging markets in Africa heavily rely on secondhand clothing imports, with a significant portion of these items being deemed unusable upon arrival, leading to environmental degradation due to discarded textiles.
This juxtaposition of surplus inventory in developed markets and environmental harm in emerging markets has created a unique opportunity for startups in the global resale market, also known as recommerce. It is estimated that the recommerce market is set to reach around $350 billion by 2027.
One such startup seizing this opportunity is FARO, a South African company that recently raised $6 million to address the dual challenge of making fashion affordable while combating textile waste across Africa. FARO’s approach involves repurposing excess stock from major brands like Calvin Klein, Tommy Hilfiger, and Zara for the South African market, where there is a high demand for authentic products.
FARO focuses on consumer returns with minor defects that brands typically discard or incinerate due to high labor costs. The company collects these items, restores them using its facilities equipped with industrial laundries and affordable labor, and sells them at ultra-low prices, sometimes as little as £1 per piece. This not only prevents waste but also allows FARO to offer significant discounts to its customers.
The startup operates on a fixed-margin model, targeting a 45% margin after all costs. Instead of maximizing profits when margins exceed targets, FARO invests in better pricing for its customers to drive loyalty and customer satisfaction.
Currently, FARO has four stores in South Africa and plans to expand to 1,000 locations across Africa, South America, Asia, and the Middle East in the next decade. The company’s inventory consists of 40% reconditioned returns and 60% overstock items sourced through partnerships with major brands like ASOS, Boohoo, and Levi’s.
FARO’s growth strategy includes developing AI-powered agents to streamline operations and enhance the shopping experience for customers. The company aims to build localized price profiles tailored to regional demand as it expands into other emerging markets, acknowledging that consumer behavior and preferences vary significantly between regions.
The startup was founded by David Torr, Will McCarren, Chris Makhanya, and Amber Penney-Young, who bring a wealth of experience from companies like Amazon and Jumia. The recent funding round was led by JP Zammitt of Bloomberg, with participation from VC firms like Presight Capital and individual investors from various industries.
FARO’s success in addressing the challenges of excess inventory and textile waste while providing affordable fashion options highlights the potential for innovative solutions in the global fashion industry. With a focus on customer-centricity and sustainability, FARO is poised to make a significant impact in the recommerce market and beyond.
